By
Hannah Griffith
|
9 min read
|
January 20, 2023

Appraised Value Vs. Market Value

Until they face it, most people think the appraisal and market value should be the same. After all, both are about the same home. However,  it is not valid. The appraisal value is lower in most cases of appraised value vs. market value. In this guide, we will solve this mystery, and by better grasping the lingo and experts' opinions, you will be more prepared to plan your move. 

Appraised Value Vs. Market Value

When you want to buy or sell a home, you will see two different terms for its evaluation. These terms are confusingly similar. However, there is a difference between market value and appraised value. Both values are correct in their context.

A skilled appraiser estimates an appraised value according to a set standard. Your lender needs this review for the loan approval process. A lender will only authorize a loan for a value equal to or lower than the appraised value. However, the market value of a property is what the buyer is willing to pay in ordinary conditions.

What Is Market Value?

Fair market value, or a home's market value, is its real value in the open market. The buyers determine this by offering their price. Therefore, it is neither related to the appraisal value nor the assessed value. Instead, it reflects one of the many viewpoints on the home's value. Other viewpoints, like the government or the banker, may be different.

The confusion starts when we want all evaluations to be the same because all of them are related to a single property. However, this is not the case. The market value may be the most important of all other values because the property almost always sells on this value and not others.

What Factors Determine The Market Value Of A Home?

Many factors determine the market value of a home. Let us explore them in detail.

Supply And Demand

Like all commodities, the law of supply and demand is also valid in real estate. When there is a low supply of new houses and demand is booming, the price will go up and vice versa. Demand skyrockets when the mortgage rates are lower. More people can afford a mortgage and buy a house. This higher demand increases the price. It has been a trend in the last several years. However, the interest rate is rising, and the mortgage cost is prohibitive. Thus, in the future, the market may move in another direction.

Comparable Sales

Although each property is unique, the realtors consider comparable sales for price estimation. It is because the house sold at a particular price can impact the price of all similar dwellings. Therefore, the real estate agents might perform a comparative market analysis (CMA) to determine similarity.

For example, they will look within a small radius of one mile or less. Similarly, the covered area, house type, build year, and the time of sale should also be very close. Once they establish that two properties are similar, the price of one is comparable to the other. Of course, it is not a hard and fast rule. However, it helps to have an educated guess of the price of a home.

Condition, Features, And The Amenities Of The Property

Here comes the uniqueness of each property into play. The more features a property has; its market value will be higher. Similarly, a home's market value depends on its condition and amenities. For example, if two houses are identical in bedroom count and age, the one which is better maintained would price higher. Realtors are expert enough to weigh important factors into pricing.

What Is Appraisal Value?

The appraisal value of a home is an expert opinion on the value of a property. It determines the worth of a property based on its characteristics and current market conditions. An appraiser is a real estate professional having a state license. Appraisers usually work on behalf of banks and other lending authorities. Their job is to perform an unbiased assessment of the property. The mortgage lender hires the appraiser, while the buyer usually pays the fees.

The appraiser uses various methods and tools to assess the property's value. These methods may include analyzing comparable sales in the area. It also includes examining the property's condition. Similarly, the appraiser also considers all essential features of the property, like its age, bedrooms, covered area, finished area, fixtures, location, and amenities. 

There can be many uses for an appraisal value. First, mortgage lenders use this value to estimate their risk on investment or the loan amount. Second, one can use this value to determine the property's sale price, calculate property taxes, insurance premiums, real estate portfolio management, etc.

However, the assessed value is different from the appraisal value. The tax authorities use assessed value to calculate the tax on the property. It has other calculation methods, which you can challenge in some cases. In comparison, the appraisal value calculation process is more rigorous. It also considers all the unique features of a property while the assessed value is general purpose in nature.

Which Factors Determine The Appraisal Value?

An appraiser will consider many factors when deciding the appraised value of a home. For example, they thoroughly check the interior and exterior of the house. Similarly, they evaluate all related data to determine the property's accurate price. The top factors that an appraiser will include in its evaluation may consist of the following:

  • Location: The location of a property can have a significant impact on its value. Factors such as proximity to schools, shopping centers, public transportation, and other amenities can impact the demand and value of a property.
  • Size: The number of bedrooms, and total square footage, can also influence its value.
  • Condition: The age and quality of the building and its systems can affect its value.
  • Features: The features of a house, such as a garage, pool, or finished basement, can impact the evaluation.
  • Recent Sales Data: An appraiser will often check recent comparable sales data to determine the value of a property.
  • Trending: market trends, including demand and supply, are also essential in determining the value of a property.
  • Other: Factors like area zoning, potential future development, and environmental status can change the value.

Solving Market Value Vs. Appraised Value In Real Estate

In real estate, the market value is its possible sale price in a competitive market. It follows the current supply and demand for similar properties in the area. Therefore, market value can change and follow real estate trends.

On the other hand, an appraisal is an expert opinion by a professional appraiser about the value of a property. The appraiser considers various factors such as the size, condition, location, and features of a property, as well as recent comparable sales. The mortgage lender requires an appraisal, although one can have it to determine the sale price.

It is important to remember that the market value vs. appraised value can be different. It is because many people and trends determine the market value. In contrast, a single professional figures the appraised value according to a strict standard.

FAQs About Appraised Value Vs. Market Value

Here is a list of frequently asked questions about the difference between these values.

Is Appraised Value Higher Than Market Value?

In most cases, the appraised value is lower than the market value. However, the trend can guide you better. For example, if the appraisal is low, but you see lots of buyer interest, the market value is higher or vice versa. 

Why And How Can You Improve Appraised Value Vs. Market Value?

An improved appraisal value means a more or easier loan to buy the house. Yet, an appraiser will not change their mind due to cosmetic changes. Yet, you can supply them with better data about the area, your renovations, appliance warranty, etc. This reliable and improved data can help them improve the appraised value vs. the market value.

What To Do If The Appraised And The Market Values Are Different?

You can challenge the assessment if you believe there is some foul play or if the report contains misleading data. On the other hand, you can apply for a second appraisal to take your chances. Yet, there is no guarantee of higher appraisal or the lender's acceptance.

Why Does Appraisal Value Differ From The Market Value?

Both values differ due to different points of view. The market value means what risk a buyer is keen to take for this property. The appraisal value means what chance the lender should take on their investment. 

The Bottom Line: Appraised Value Vs. Market Value

The bottom line while discussing appraised value vs. market value is that both values have their importance. Both values are correct in their domain. The difference between the market value and the appraised value is due to their usage. Knowing this difference can help you to ask the right questions and focus on the correct data.

The market value of a home is the value a buyer is willing to pay. It is the value the market believes your property is worth. It is important because the buyer will not pay more than this amount. On the other hand, the appraisal value is an amount chosen by a skilled appraiser to assist the lender. The sole purpose of the appraised value is to protect the lender from exceeding the loan.

Meanwhile, the assessed value is what the government determines your property is worth for taxation purposes. Therefore, no one will be buying or selling at that price. Moreover, this price is according to a formula and neglects many of the unique features of a home. Therefore, you can often apply for a review on this value to reduce your taxes. If you have any questions, feel free to contact us now.